TMI Blog2000 (8) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... one to believe that trial run commenced only after the close of the previous year, and even the training of the employees of the assessee-company by foreign technicians for running the imported plant and machinery was also completed after the close of the previous year ?" Ashima Syntex Ltd., the assessee, and the respondent herein had filed the return of income on December 30, 1993, declaring total income of Rs. 60,71,322 for the assessment year 1993-94 for the year ending on March 31, 1993. Under sections 143(1) and 143(2) notices were issued. Before the Assistant Commissioner of Income-tax the assessee stated that the assessee had imported air-jet looms from Japan. These looms were technologically very advanced and very sensitive to humidity. The assessee had a humidification plant but the production process took long time to stabilize. The assessee's plant is located in a notified industrial area notified by the Government of Gujarat which is 30 Kms. from Ahmedabad and the avail ability of skilled man power to operate such machinery and to train them caused delay in commercial production. However, it was stated that the assessee commenced trial production on March 26, 1993, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains shall be computed after making the following allowances, namely (iv) in respect of insurance against risk of damage or destruction of buildings, machinery, plant, furniture, stocks or stores, used for the purposes of the business, profession or vocation, the amount of any premium paid ; (v) in respect of current repairs to such buildings, machinery, plant or furniture, the amount paid on account thereof ; (vi) in respect of depredation of such buildings, machinery, plant or furniture being the property of the assessee, a sum equivalent to such percentage on the original cost thereof to the assessee as may in any case or class of cases be prescribed ... (vii) in respect of any machinery or plant which has been sold or discarded, the amount by which the written down value of the machinery or plant exceeds the amount for which the machinery or plant is actually sold or its scrap value : Provided that such amount is actually written off in the books of the assessee : Provided further that where the amount for which any such machinery or plant is sold exceeds the written down value, the excess shall be deemed to be profits of the previous year in which the sale took pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding is given on the said issue. Learned counsel for the assessee on the merits of the matter stated that the word "used for the purpose of business" obviously means used for the purpose of the assessee's own business the profits of which are being charged. It was further submitted that the words "used for the purpose of business" denote user for such purpose during the accounting year. It was stated that the word "used" should be understood in a wide sense so as to embrace passive as well as active user it was stated that when machinery is kept ready for use at any moment in a particular factory under an express contract from which taxable profits are earned the machinery can be said to be used for the purpose of business which earns profits if it is not actually worked for commercial production. Learned counsel for the assessee further submitted that it is not necessary that the machinery, plant, etc., should be used throughout the accounting year or during the whole of that year. Even if they are worked for only a part of the year, the assessee should be granted full allowance and not merely an amount proportional to the period of user. As regards additional submission o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ped with all the plant and machinery including wet press found necessary to produce the requisite quality of paper and substantial quantity of raw materials necessary for the manufacture of products by the end of June, 1966, the assessee must be held to have set up its business at that point of time, although only trial production followed thereafter and regular commercial production commenced some time later ?" The court, considering the facts and the material placed on record before it, reframed the question which reads as under : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee had set up its business by about the end of June, 1966 (sic 1956), since it was equipped with all the plant and machinery and the raw materials necessary for manufacturing the products ?" The Division Bench relied upon the judgment of the apex court in the case of CWT v. Ramaraju Surgical Cotton Mills Ltd. [1967] 63 ITR 478 in order to find out what is the meaning of "established". After referring to other cases on the point, on page 883, the court observed that : "The real test indicated by the Supreme Court is. whether a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, additional plant and machinery was required to be installed. Thus, in view of these peculiar facts and circumstances of that case, applying the test indicated by the Supreme Court whether the company has put up its plant and machinery and other business activities in such a shape that it was ready to go into the business production at that point of time, i.e., by about the end of June, 1966. After considering the judgment of this court in CIT v. Saurashtra Cement and Chemical Industries Ltd. [1973] 91 ITR 170 wherein the Division Bench made the observations (on pages 175 and 176) which was extracted by the Division Bench and stated as under "But, as pointed out above, business is nothing more than a continuous course of activities and all the activities which go to make up the business need not be started simultaneously in order that the business may commence. The business would commence when the activity which is first in point of time and which must necessarily precede-the other activities is started. Take, for example, a case where an assessee engages in the business of a trader which consists of purchasing and selling goods. The assessee must necessarily purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore the appeal could not raise any substantial question of law and therefore also this court should dismissed the appeal. However, learned counsel for the assessee has cited the fallowing decisions in support of the case that the reasoning adopted and the finding reached by the Tribunal are correct and as per provisions of law. In the case of CIT v. Visivanath Bhashar Sathe [1937] 5 ITR 621, the Bombay High Court, speaking through Beaumont C. J., held that : "But I think that the word 'used' in this section may be given a wider meaning and embraces passive as well as active user. Machinery which is kept idle may well depreciate, particularly during the monsoon season. It seems to me that the ultimate test is, whether, without the particular user of the machinery relied upon the profits sought to be taxed could have been made ; and as I read the agreement in the case, the profits of the assessee during the year under assessment could not have been earned except by his maintaining his factory in good working order, and that involves the user of the factory and the machinery." Before the apex court in the case of Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265. From ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... always jurisdiction to intervene if it appears either that the Tribunal has misunderstood the statutory language-because the proper construction of the statutory language is a matter of law-or that the Tribunal has made a finding for which there is no evidence or which is inconsistent with the evidence and contradictory of it." In the instant case, the Revenue could not point out that there is no evidence before the Tribunal to arrive at the conclusion it reached or that the conclusion arrived at is inconsistent with the evidence and contrary to it. On the contrary, we are of the view that the Tribunal has properly appreciated and understood the facts and the law and has passed an order in accordance with law. The Division Bench (Coram: Fazl Ali C. J. as his Lordship then was and Manohar Lall J.) of the Patna High Court in the case of CIT v. Dalmia Centent Ltd. [1945] 13 ITR 415 after relying upon the observations in the case of CIT v. Viswanath Bhaskar Sathe [1937] 5 ITR 621 (Born) on page 419, observed as under : "In my opinion, however, this sub-section cannot be invoked in the present case. The words 'not wholly used for the purposes of the business, profession', etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business, profession or vocation' and, even for the applicability of the second proviso to clause (vii) of section 10(2), the machinery in the instant case it must be shown to have been used by the assessee in the business which it was carrying on in the previous year ; (ii) the word 'used' in that section should be understood in a wide sense so as to embrace passive as well as active user ; when machinery is kept ready for use at any moment in a particular factory under an express agreement from which taxable profits are earned, the machinery can be said to be 'used' for the purposes of the business which earned the profits, although it was not actually worked ; (iii) as the agreement clearly provided that, although two out of the four presses which were directly in the pooling arrangement were to remain idle while the two presses worked, the owners of those presses which were idle had to keep them ready for use at any time and the contingency for their use could also, upon the terms of the agreement, arise at any time and having regard to the above meaning of the word ' used', it is clear that even these presses which remained under forced idleness were in use during the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; that this can happen only when production commences. The court posed three questions as under (page 886) : "Can depreciation allowance be claimed for the building for a period : (1) before the completion of the installation of machinery in the said building ; (2) before it starts functioning effectively (3) before the production (even trial run) is commenced and the business of the company of manufacturing an article with the aid of the said machinery has commenced ?" The court also observed that : "in other words, the question is whether it can be said that the building has been used in the business even before the articles, for production of which the plant is set up, have not been produced and the machinery itself has become functional later on." The court observed that "In order to succeed, the assessee must establish (1) that the building in question was used for the purpose of his business, and (2) that it was used for the purpose of his business during the relevant period." The court further pointed out that depredation is claimable only on account of its user for business which can result in profits or gains, and this can happen only when production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t commence regular production on a commercial scale cannot erase the fact that the plant and machinery were new, that they were installed, that they were put to use. The court further pointed out user of the machinery in test production or experimental manufacture was still user for the purposes of the assessee's business. Thus, it is clear that the settled position in law is that it is not necessary that the machinery must be used for a particular number of days so as to entitle it to depreciations but it requires that it should be used for the purpose of business or profession or vocation. The trial run of the machinery is obviously for the purpose of business and not for any other purposes. What is required to be seen that the machinery must be "used" for the purpose of the business and keeping in mind the wider meaning ascribed by various decisions of various courts to the term "use", even trial production of a machinery would fall within the ambit of "used for the purpose of business". Further, as the statute does not prescribe a minimum time limit for "use" of the machinery, the assessee cannot be denied the benefit of depreciation on the ground that the machinery was used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but if machinery is imported and it is merely fixed here, it does not mean that the machine would not work. Ultimately, on evidences the Tribunal bas found that 2,68,412 mtrs. of grey cloth was manufactured. The law does not require that there must be optimum production for granting the benefit. Law only requires that there must be use of plant and machinery for the purpose of business. Use of such words that plant and machinery was run more extensively or was required to be. used for larger production is not to be found in the Act or Rules. Whether the plant and machinery were up to the extent of its efficiency is irrelevant for the purpose of deciding depreciation. The test is that building, plant and machinery are used for the purpose of business. It is not even necessary that in a year it must have been used for a particular number of days. If the intention of the Legislature was that if the plant and machinery is used for a particular number of days, only then one is entitled to get the benefit of depreciation, the Legislature would have made that provision. Earlier, rules were to the aforesaid extent. Even recently, with regard to depreciation of vehicles, law is made clear. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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